Purchase and Sale Agreement (PSA)

Definition

The purchase and sale agreement (SPA — Share Purchase Agreement for shares, or APA — Asset Purchase Agreement for assets) is the final legal document that closes the transaction. It’s the most important contract in the entire sale.

In French-language Quebec documentation, you’ll see convention d’achat-vente used for the same concept.

Unlike the letter of intent, which is generally non-binding, the purchase and sale agreement is fully enforceable — once signed, the transaction is legally committed.

Why it’s the most critical document

The purchase and sale agreement translates everything that was negotiated into legal terms. Its contents have financial and legal consequences that can surface years after closing.

Key elements

• Price and payment terms: total price, vendor take-back, earn-out, working capital adjustment
• Representations and warranties: seller’s statements about the state of the business (accuracy of financial statements, absence of litigation, tax compliance)
• Indemnification: recourse mechanism if a representation proves false
• Closing conditions: required approvals, third-party consents, financing
• Non-compete clause: seller’s post-closing restrictions
• Transition period: seller’s role and compensation after closing

Representations and warranties — the hidden risk

Representations and warranties are the most heavily negotiated section. The seller guarantees certain facts about the business.

If those facts prove false after closing, the buyer can claim indemnification. That’s why transparency during due diligence is crucial.

What every seller should know

• The agreement is drafted by lawyers — but it’s YOUR responsibility to understand what you’re signing, especially the representations and warranties.
• Negotiate clear limits on indemnification: maximum amount, validity period, minimum claim threshold.
• Your broker coordinates the process, but this document requires an M&A-specialized lawyer — not your generalist attorney.